(FAQs from my M&A Integration training and workshops)
“Can you please tell me what competencies I should build in-house versus leverage external resources?”
This is one question that I repeatedly get asked at all my M&A training courses. And I can understand why my trainees ask this question.
The reality is that there is still a lot of ignorance and lack of awareness about M&A integrations. Many business leaders either overestimate their capabilities or hide their shortcomings by not acknowledging the gap in understanding. Many M&A leaders firmly believe that they can manage an entire integration with just an in-house resource either part-time or at best full-time resource. In fact, I distinctly recall interactions from the past as a consultant where doors were shut on my face on the pretext that these companies had all the capabilities in-house and didn’t need any external resources. While I know most of these companies had some internal teams but to claim they had the entire entourage of capabilities was being simply ignorant. Unless you are a big Fortune-500 company that buys and sells companies every couple of months, your in-house capabilities will always have limited depth. And rightfully so. In today’s day and age, it also doesn’t make financial sense to build the entire set of capabilities in-house or maintain a high level of super specialized skills in your company.
In this article, I have taken this specific challenge of right resourcing for M&A integration and exploring it to provide some insights to address the issue.
- You know that in today’s corporate world, majority of the mid-and senior-level leaders remain in their roles for a period of 2 to 3 years. After that they move on to new roles and some of them may not even be related to M&A integration. Not just that, even if they remain within M&A integration space, the content of the role can radically change. Under these circumstances, there is always a challenge of continuity of contextual knowledge in-spite-of the best efforts to document them. You can document processes and procedures but context created by experience is very difficult to codify. Therefore, whatever knowledge gets built with an individual will move on, once the tenure is up whether you like it or not.
- Secondly, and this one is quite visible in support and operational functions, that many of the leaders tend to be loyalists and they remain in their jobs/roles for many years. You know the kind of people I’m referring to. In fact, some of them are going to retire from these jobs. Due to their long-term association and seniority, create a silo of knowledge and experience, commonly referred to as “tribal knowledge”. Tribal knowledge provides them job security on one side but prevents any new ideas being incorporated into their way of thinking. The problem is that many of these tribal leaders think that they know it all. However, if you inspect the kind of M&A transactions that your company would have done historically, you will see most of them follow a certain pattern, either they are of a certain type or they have been bought just for the products and not necessarily for the business. In both cases it’s a matter of simple tuck-in integration to the acquiring company.
- The third point is that even if you are the biggest of the big companies, you still won’t be buying and selling companies left, right and center. Yes, if you are highly active then you will probably buy several companies during a year but what are the chances that you will use the same set of individuals in each one of them. For that matter, what are the chances that each of the acquired companies are highly similar. Whether it is the market your target operates in, the products and services they sell, the kind of clients and the industry vertical in which they play, each of the target companies will have variation. And this variation needs to be reflected in the integration team composition. In other words, you will need certain additional specific skill-sets for each integration which you may or may not have in-house. While senior leadership who provide input for M&A integration or are in decision making positions, most of your M&A staff members cannot be actively involved in more than one or two integrations at a time anyway. The point is whatever maybe the condition, it is very difficult to develop and maintain a diverse range of M&A skills in an organization and be in a position all the time to maximize their skill utilization.
- Fourth point is that Post-merger integration (PMI) resources are expensive and are highly desirable in the market. Therefore, to keep them excited and incentivized and to retain them can soon turn into an expensive affair. Moreover, you may decide to spend money to develop certain highly specialized skills in-house but when actual acquisitions happen, you find out that those integrations needed a different skill-sets compared to the one that you built. Also, when you assign one of these expensive resources to an integration, unless this integration finishes, the resource can’t be reallocated to another integration. Timing can become a big issue.
Given the above, you can see that there are genuine conditions where it is prudent to hire external resources rather than maintain the skills in-house. Having said this, I also fully acknowledge that there is a genuine need to have internal capabilities. I mean not having internal capabilities and embarking on M&A strategy is almost suicidal. I’ve seen enough number of cases where companies have completely depended on external resources to conduct their integration and they have struggled miserably. Now it is time to explore the internal capability requirements as well.
- First of all, every integration needs a strong understanding of your company’s institutional and contextual knowledge. This is something not even the best external integration resources will be able to bring in except maybe if the external resource has been working with your company intermittently for a few years. Even then, their knowledge is going to be limited and sketchy at best.
- Secondly, in every company there are movers and shakers i.e. people who yield high levels of influence or people who are political. These people can sway initiatives in either direction: positive or negative. If external resources come negatively towards these people even though the external resource is right in his or her stand, the internal influencers usually come out at the top. I had learnt this lesson in a very hard way. A few years back, I was involved in an integration. In the Integration, I had to work closely with the HR leader. What I wasn’t aware was that the HR lead was very close to the COO of the company and was very political. As the integration had significant headcount impact, it had significant number of actions for the HR team to be completed in a quick time-frame. However, due to lack of intent from the HR leader, those actions started missing deadlines. Worst part was when I escalated the issue, I found caught on the wrong side. The HR person had completely painted a different story to the management even before I could escalate and as a result, the management didn’t get convinced of the condition. It is of course, entirely a different story that the management realized their mistake long time after I had exited the project. But this experience had taught me a great lesson which is identify the internal influencers upfront and align them, make them part of your integration journey with a common purpose.
Every organization have their own institutional processes and governance. Knowledge about the framework, policies and procedures are always to be found with internal people. An integration project has to comply to an organization’s internal processes, governance and reporting requirements. Whether it is budget, revenue reporting or monthly steering committee update, every integration needs to produce deliverables that needs specificity linked to the business.
Now you have seen both the sides of resource requirements. Internal resources have their own competencies that are required for an integration whereas there are also, large number of cases where you need to acquire specific skill-sets externally.
In my opinion, in most of the cases, a hybrid approach proves to be an optimum combination. You as a company have developed a core competency for M&A integration and yet to handle the uniqueness, variability or surge requirements of an integration, you have the capability to bring in the right external resource at the right time to complement your internal organization.
Categorization of roles
I’m sure you must be thinking what roles should be maintained in an organization and what roles should be hired externally.
I try to use a simple rule of thumb. If the roles need strong institutional knowledge, judgment and awareness of contextual knowledge, or needs a strong ability to influence and drive transformation then these roles should be maintained internally. Here are some examples:
- Integration leader
- Change champion
- Finance and Budget leader
- M&A HR and People decision maker
- IT M&A decision maker
On the other hand, the roles that require a working with details, that require knowledge and expertise of using diverse set of tools, templates and techniques, these roles can be best sourced externally. You should bring in external resources who have ready checklists, relevant methods, tools and technics, and who can be quickly deployed to galvanize an on-going integration initiative. These are the people who are not only aware of checklists and templates but are adept on modulating their approach depending on the need and complexity of an integration. They know both the art and science of running an integration. Here are the roles that I believe should be sourced externally:
- Integration Management Office leader (the person coordinates the checklists, ensures templates usage and proper on-time reporting)
- Change leader
- Cultural integration
- ERP and IT infrastructure integration
- Leadership and people assessment leaders
Sometimes you may be faced with a very unusual situation where your best internal candidate for the integration leader may not be the most capable person for the job. However, you still need an internal leader for contextual and institutional authority. Under these circumstances, it is best that you hire an external shadow integration leader. The external leader acts as a mentor and a guide to the internal leader and helps in making all the relevant decisions for the integration. While it is two separate people but in spirit they work as a single unit. The internal person provides all the contextual and institutional knowledge whereas the external person brings in the diversity of expertise and experience that can be leveraged for that specific integration.
At the end of the day, the exact composition of your team is going to be dependent on several factors including the ones highlighted in this article and will be unique for each integration. It is not really an exact science not is it a complete art. So, you will need to decide for yourself what makes most sense for you. Based on the article, I hope that you have gained some deep insight on how to right staff your integration team.
Are you struggling with your own resourcing for an integration? Do you need further help in understanding the above analysis better? Do you have additional questions?
I would also, like to hear your comments, experiences or if you want to read more such questions. Please feel free to get in touch with me at firstname.lastname@example.org or leave a comment with this article.